Last week the City’s Hearing Examiner removed the last barrier for citywide implementation of the City’s Mandatory Housing Affordability (MHA) scheme by finding against neighborhood groups that had appealed implementation of MHA. Neighborhood groups argued that the City failed to properly review and consider the impacts of MHA. They failed to persuade, so now the City Council can impose the fees everywhere unless a legal challenge is mounted. At this point, it’s worth looking at how we got to MHA in the first place and what might be next (read a short and concise description about, “What’s Wrong with MHA?”)

How did this all start?

All of this started over a decade ago with proposals to expand something called incentive zoning. In the waning days of 2007, a proposal was moving around City Hall that would have expanded the incentive zoning program, something one lawyer at the time called “zoning for sale;” developers would pay a fee for each additional square foot granted by the program and the money would go to non-profit housing developers. At that time I was just finishing up a stint on City Council staff. But even though we never dealt with the issue, it would come back.

For the next seven years, the fees became the central point of contention in debates about land use in downtown and South Lake Union, with non-profits and some politicians wanting higher fees and developers arguing that higher fees would be a disincentive to participating. Mostly, the fight was between those who thought billionaire Paul Allen was getting away with something and needed to make less money (preferably by giving it to non-profits with fees) and others who viewed the growth in South Lake Union as positive.

But the fight over how much to charge was limited to downtown and South Lake Union. Battles over housing in other neighborhoods was mostly about small-lot single-family development, townhouse and apartment construction, and finally, in 2013 microhousing. As the economy heated up, hiring and growth ramped up, so did the rhetoric about “greed” and “ugly buildings.” In those days, affordability was brought up as one of many issues, but the word and concept grew in repetition and volume as prices rose with increasing demand.

By the time I took on running Seattle For Growth full time in 2014, and seven years after the first rounds of discussion on incentive zoning, we’d had a massive recession caused by a housing bubble and a subsequent recovery. In fact, the market was booming and demand pressures were stoking interest in production of all kinds of housing and innovation in creating supply, especially creating smaller, less expensive housing options.

With rising prices and more construction there also came the election of Kshama Sawant, something that seemed very unlikely just the year before. Her election would turn the volume way up on the noise about rising prices and for interventions like rent control. This pressure from the left would begin to drive the discussion, but for most of 2014 the left was focused on minimum wage, and angry neighbors were pushing more limits on housing types and resisting density.

At the end of 2014 the neighbors had completed a rout of housing that had begun in 2011 when the Council, led by Mike O’Brien, killed the idea of retail in low-rise neighborhoods. Set back by modest upzones in Roosevelt but encouraged by the win on retail, the neighbors shouted down reasonable proposals to regulate small-lot housing in single-family neighborhoods and microhousing. I couldn’t get larger developers interested in turning their fire on the Council to stop this. I was told, “it isn’t our issue,” even though many of the employees moving to Seattle were looking for new, small, and cheaper units.

At the end of that year, seemingly frustrated by the logic of our arguments the City Council shifted on incentive zoning. We had always maintained that incentive zoning was no incentive; charging for additional square footage for housing just added risk and expense that discouraged additional building. It was true, only about a third of eligible projects “took” the incentive. Incentive zoning was legal, but it didn’t work. This meant less money for non-profits. Would the Council lower the price for additional density?

When confronted with the reality that the incentive zoning scheme wasn’t working, Councilmember Mike O’Brien proposed a tax on the development of every square foot of new development in the city to shake out cash for non-profits. This scheme was called the “linkage fee” and we called it the “linkage tax.” This rattled larger developers, especially Vulcan, and a group was formed to oppose the linkage tax. A letter from a bunch of land use attorneyswas written warning that a major lawsuit was possible.

The birth of a “crisis”

At this point, with small-lots and microhousing dead, angry neighbors and lefties fresh from wins on minimum wage began to turn their attention on the linkage idea. It’s important to remember that at this point damaging legislation on housing had been opposed but successful. We filed an appeal of legislation proposed by then Councilmember Sally Clark that deliberately reduced the potential for more housing production in Seattle’s low-rise zone. We did this on our own, with no support from larger developers. We failed.

I repeatedly made the case then that the Council had shifted far to the left or that it had at least realized that they could score political points at the expense of “developers” with little consequence. Housing was either viewed as an “impact,” the source of huge, undeserved profits by corporate developers, or both. View blockage, light and air, and tree protection red herrings merged with social justice claims: more new market rate housing makes single-family neighbors feel bad and it also displaces and harms poor people. More housing means higher prices!

One example of how far things had gone is worth remembering. At some point in rationalizing the imposition of fees as high as $10 or $20 a square foot for all new housing and commercial development, the City trotted out figures that we would later successfully dispute but that reassured the Council that the housing problem was insanely huge. The City staff suggested that Seattle needed 60,000 to 90,000 units of affordable housing to address the cost burden of existing households. This inspired a letter from mostly conservative Councilmembers Bagshaw and Rasmussen suggesting that the City needed to build 6,000 to 9,000 units per year for ten years! Where was the money going to come from? We are in a crisis! They said,

To reach 60,000 – 85,000 units, we must increase our supply by over 6,000-8,500 units of affordable housing annually for the next ten years if we are to make room for the people who want to live and work in our community. If we want to extend that period to twenty years, we need 3,000-4000+ units annually to reach our goal. This will require new approaches.

The City’s numbers proved to be bogus. After we pointed out that they didn’t bother to count all the existing set aside units and microhousing they lowered their numbers – back in 2015 – to something more like 26,000 households, a number that is still cited to this day. As I pointed out in a post a while ago,

Someone forgot to remind themselves that, for example, for the period between 2005 and 2012, housing production in Seattle totaled 29,330 units or, 4,190 units per year.

 

 

 

 

 

 

 

 

This was the frenzy unfolding in 2015 and over that summer when the Mayor Murray – who had indicated he had no problem imposing a linkage tax – convened something called the Housing Affordability and Livability Agenda (HALA) Committee. The notion at the time was that this group would do what the committee convened on the minimum wage would do, bargain over the linkage tax and come up with some kind of compromise. Advice from people in that process was that the Mayor would lock people in a room, pound his fist on the table, stomp around, and shout and try to force a “solution.”

HALA, the “Grand Bargain,” and a “crisis” becomes a slow motion disaster

Right now might was well be the time to make a reference to the Trojan Horse. How sad for people that have quit reading at this point to miss out! As Barbara Tuchman writes in her essential March of Folly,

Troy falls at last after ten years of futile, indecisive, noble, mean, tricky, bitter, jealous and only occasionally heroic battle. As the culminating instrumentality for the fall, the story brings in the Wooden Horse. The episode of the Horse exemplifies policy pursued contrary to self-interest — in the face of urgent warning and a feasible alternative. Occurring in this earliest chronicle of Western man, it suggests that such pursuit is an old and inherent human habit.

Why would the leaders of Troy believe that the Greeks had grown tired of fighting, had gone home, and left the big hollow wooden horse as an offering for their wrong doing? Because they were exhausted. Tired from defending their city from a relentless siege. Why would anyone agree to an illegal mandate to pay more fees after opposing voluntary fees? People were tired and big developers thought this would be the end. Wheeling the Trojan Horse of mandated fees into the code would end the war, non-profits would be happy with their cash, and life would go on.

Remember, by 2015 the battle over housing had been raging off and on for the better part of a decade. I was personally exhausted even back then. We’d made every rational argument that more housing was good for lower prices, for the environment, for transit, for jobs, for tax revenue, and for people with less money. Each time we were met with stiff and stubborn resistance, sketchy data, and politics: someone needs to be punished. All this arguing took place in committee meetings, council offices, comment sections, and in person. It was ugly even back then.

By now there were two groups that could say they represented developers, the group of larger developers assembled by Vulcan and Seattle For Growth. I was deliberately excluded from the HALA discussions, even though our group represented arguably the people that build most of the housing in the City. But at the time, it seemed to make sense for me to sit it out; it allowed me to either agree with the outcome or oppose it from the outside. I did what I could, sending articles and emails often to the committee.

In the end what emerged was a deal and a myth, a myth as strong as the one described in the Aeneid. The deal that emerged on fees was between large developers in downtown and South Lake Union who would pay into the existing incentive zoning program for additional square feet on existing proposed projects, and then the City would come up with “modest” upzones and charge fees on every square foot of new housing in the city. This was called the “Grand Bargain,” and is frequently and constantly still called to this day, HALA. This is the myth. Vulcan even paid for signs and stickers that say “HALA Yes” and funded a group called Seattle For Everyone to push it.

Most of the interesting ideas in the HALA report were ignored and the Grand Bargain, now called MHA, would come to absorb the attention of the City and staff and everyone else for the next three years. Throughout this time, no sustained discussion was had in the press or media about the numbers behind the proposal. The old 26,000 cost burdened number has never been revised or updated, there’s been no analysis of the costs of producing non-profit housing and how much could be realistically produced with fees and when. That number was uncritically used to rationalize the so-called “Head Tax.” And the story of HALA became about angry neighbors opposed to density and “urbanists” cheerleading the MHA proposal, mostly because of the fact that neighbors opposed it.

Weirdly, a group of people emerged from the HALA discussion who began to relentlessly pick fights with single-family neighbors about upzoning single-family neighborhoods. This happened when the HALA recommendations were mischaracterized in a Danny Westneat column in the Seattle Times as some kind of single-family roll back. It wasn’t. Yet single-family neighbors made a lot of noise and the Mayor said he’d leave single-family alone. Incensed, some lashed out at single-family neighbors as racist. I watched this with wonder; those very neighbors had done most of the damage. Now, with it too late to save small-lot, mircrohousing, and preserve the low-rise zones there was an anti-single-family mob supporting MHA while the angry neighbor mob was opposing it.

The false narrative and the future

Lost in all this too, was any study or response of what MHA would do to housing production. I personally over the years have made pitch after pitch and plea after plea to consider the costs in production of fees that will be very significant. Mostly, I’ve been treated like Agent Mulder in the X Files. I think that this is partially because my story is complicated. Most people have quit reading by now. The story has lots of twists and turns. Developers and builders are busy closing deals and trying to create housing in an environment that has become less and less hospitable to them and their work. The urbanist crowd, the pro-MHA mob with little immediately at stake for themselves, have been cheerleading the density offered by MHA without any regard to whether the proposal will make things worse. And the angry neighbor mob has opposed the density.

Imagine if Sound Transit proposed a charge on some consumer product related to transportation, say fuel, and had a complex geographic fee schedule. Let’s say the fee was supposed to pay for “affordable transit” including more bus service. One can imagine that the debate would focus on the wider issue of transit capacity and need, but it would also zero in on the question, “What will this do to people paying the fee and what does it actually pay for?”

In today’s debate over MHA, nobody asks these questions. The appeal defeated last week was the latest drama in what has been told as a story about angry neighbors opposing the downsides or more housing in their neighborhood and the Council pushing a policy of “upzones for affordable housing.” How much housing? Where? When? How much density? Will developers build under this new scheme? What happens to market rate housing prices?” There is silence on these key questions, silence that is strange for a policy that will have dramatic and far-reaching effects.

What’s next?

With the neighborhood appeal now squashed, the wooden horse of MHA has just leapt its almost final hurdle, through the main gate of the city walls. The City Council has resisted and ignored any discussion of the inflationary effects of adding thousands of dollars in fees to new housing construction. In fact, they want to add morewith impact fees and they’ve shut off any discussion about reducing the costs of producing market rate and non-profit housing. Executive staff has been high handed and arrogant, dismissing with their silence any notion that MHA won’t solve housing prices but simply make them worse.

The fact is that MHA will stall and kill many projects. We have yet to quantify exactly how many and where. It is a difficult task with each project different from the next. But anecdotally, I hear all the time from builders trying to figure out what the new fees would mean and trying to figure out how they’ll absorb fees. Next, projects can and will work but only when price and rents go up to absorb the fees. This is just a fact. There is no money in development of housing except the money from rent or sales price, period. If costs go up, projects don’t happen or consumers have to pay more.

Finally, remember that letter written by all the big shot attorneys in town? Nothing has changed except the calendar and politics. The proposal is still illegal. You can’t make people include rent-restricted housing and then charge them a fine if they don’t do in exchange for permits. It’s against state law for many of the same reasons argued in that letter against linkage taxes. Here’s what that letter said:

RCW 82.02.020 prohibits the City from imposing a tax or fee on development unless that tax or fee is both voluntary and needed to mitigate a direct impact of a speci2c development. A mandatory linkage fee that applies to most development is neither.

Unless the development community can rouse itself and invest in a legal challenge, the wooden horse of MHA will find it’s way into the code where it will be enshrined in the City’s land use code forever as an entitlement, a stream of cash, for a very powerful interest, non-profit housing developers. I will be Cassandra now: if MHA is not aggressively opposed and soon, the fees will likely never go away. Years from now, when speaking of the challenges to building and financing housing, the discussion will be about fees. And the higher the fees, the higher the rents will need to be, and will inspire even more, higher fees.

This will happen. But will anyone listen to Cassandra now?

Yet frantic pressed we on, our hearts all blind,
and in the consecrated citadel
set up the hateful thing. Cassandra then
from heaven-instructed heart our doom foretold;
but doomed to unbelief were Ilium’s sons.
Our hapless nation on its dying day
flung free o’er streets and shrines the votive flowers.
Vergil. Aeneid. 2.234

The leaders of Troy ignored the warnings. But we do have, as Tuchman points out, a “feasible alternative” to the certain destruction of MHA. We can allow more housing of all kinds in all neighborhoods of Seattle for people of all levels of income. Perhaps had Laocoön and Cassandra filed a legal challenge in Superior Court they could have slowed the progress of the wooden horse long enough for the leaders to think twice. Perhaps we’ll have to leave it up to a judge.

Featured image is The Procession of the Trojan Horse into Troy from about 1760, Giovanni Domenico Tiepolo, The National Gallery, London